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Australian Investment Blog

ASX:API 14/12/2018

The Australian Pharmaceutical Industries Ltd (ASX:API) share price surges on merger news

The Australian Pharmaceutical Industries Ltd (ASX:API) share price surged to a two-week high after the medical and beauty products group revealed it bought a large chunk of its rival’s shares and lobbed a takeover bid. The API share price surged 4.4% to $1.54 during lunch time trade to become the best performing stock on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index with the Infigen Energy Ltd (ASX:IFN) share price and New Hope Corporation Limited (ASX:NHC) share price trailing in second and third spots, respectively. In contrast, the ASX 200 fell 0.7% at the time of writing as most sectors lost ground on weak off-shore leads. API said it bought a 12.95% stake in embattled Sigma Healthcare Ltd (ASX:SIG) and confirmed it had made a non-binding indicative offer back in October to buy the rest of Sigma’s shares that values the target at around $760 million on a market cap basis. Australian Pharmaceutical Industries (ASX:API) Chart Sigma shareholders will receive 0.31 API shares and 23 cents in cash for every Sigma share. Thanks to the large surge in API’s share price, this means Sigma shareholders will get close to 71 cents per share compared to Sigma’s last closing price of 40.5 cents – assuming API’s share price gains holds. Sigma’s share price is unchanged as the stock has gone into a trading halt this morning to allow the board to consider the offer – although the market already appears to have made up its mind about the deal. Sigma’s share price had slumped to a seven-year low after it lost a large contract with privately-owned Chemist Warehouse, which we discussed at the time here. Sigma Healthcare (ASX: SIG) Chart The jump in API’s share price is unusual in that the shares of the bidder typically falls, particularly when it’s using its scrip to fund the purchase. But the pharmaceutical requires scale to succeed and that has been a key reason behind the success of Chemist Warehouse, which is believed to be mulling an initial public offer (IPO).

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